The energy regulator Ofgem has called for a full-scale competition enquiry into the UK's big six energy suppliers.

Ofgem said the big six' profits increased four-fold in just three years - from £233 million in 2009 to £1.1 billion in 2012 – and had found “no clear evidence of suppliers becoming more efficient in reducing their own costs”.

It added: “Further evidence would be required to determine whether firms have had the opportunity to earn excess profit.”

The regulator also found suppliers had been “consistently setting higher prices for consumers who have not switched” and found evidence of "possible tacit coordination reflected in the timing and size of price announcements".

It added while it found no evidence of “explicit collusion between suppliers”, tacit coordination, while not a breach of competition law, “reduces competition and worsens outcomes for consumers”.

Ofgem said in the time available it was unable to determine if big six profits were excessive but questioned suppliers' contentions five per cent was a “fair” profit margin.

The regulator added: “While the evidence on profitability is not conclusive, the rise over the last few years allied to no clear evidence of increased efficiency is indicative of a possible lack of effective competition.”

The big six – British Gas, E.ON, EDF, npower, Scottish Power and SSE – supply close to 95 per cent of all homes in Britain.

Ofgem has now called for an investigation by the Competition and Markets Authority, which could take up to 18 months to complete.

The investigation, which would be the first full-scale enquiry into the functions of the energy market in the UK, would have the power to break-up the big six if it found their practices were uncompetitive.

Energy price comparison site uSwitch estimates between 2004 and 2012, household gas and electricity prices rose on average 151 per cent from £522 a year in January 2004 to an average of £1309 at November 2012.

Ofgem said the Competition and Markets Authority (CMA) investigation would "consider once and for all whether there are further barriers to effective competition".

The regulator said public mistrust of energy suppliers had “intensified”, which it said “highlights the need for a market investigation to clear the air”.

Ofgem said an investigation of the market will “once and for all clear the air and allow the CMA to ensure that there are no further barriers to effective competition.

The regulator added: “An investigation would reassure consumers and complement Ofgem’s reforms for a simpler, clearer and fairer energy market.”

Ofgem has today published a report prepared jointly with the Office of Fair Trading (OFT) and the CMA which it said “confirms Ofgem’s previous analysis of why competition is not working as well as it could”.

The joint report “reinforcing concerns about barriers to entry for independent suppliers and persistent high market shares of the largest energy companies”.

The report also found a general decline in consumer trust of energy supply firms with 43 per cent of consumers surveyed saying they don't trust energy firms to be open and transparent.

It also found “continuing uncertainty over whether the vertical integration of the large energy companies is in consumers’ interests” and an investigation would “conclusively determine” if there should be “more separation between the largest companies’ supply businesses and generation arms”.

The six larger suppliers all own energy infrastructure such as power stations and supply businesses. This makes it difficult for new entrants (who don’t own such assets) to compete against them, particularly in the electricity market. Ofgem’s reforms to open up the wholesale power market aim to tackle this.

Ofgem said: “The six larger suppliers all own energy infrastructure such as power stations and supply businesses.

“This makes it difficult for new entrants - who don’t own such assets - to compete against them, particularly in the electricity market.

“Ofgem’s reforms to open up the wholesale power market aim to tackle this.”

The regulator said it will “substantially increase the level of penalties” it imposes to deliver “strong deterrence”, effective from June 1.

Ofgem chief executive Dermot Nolan said:"Ofgem believes a referral offers the opportunity to once and for all clear the air and decide if there are any further barriers which are preventing competition from bearing down as hard as possible on prices.

“The CMA has powers, not available to Ofgem, to address any structural barriers that would undermine competition. Now consumers are protected by our simpler, clearer and fairer reforms, we think a market investigation is in their long-term interests.

“I want to make sure that consumers are put at the heart of this market, so we will continue to take action to help consumers.

“This includes from today putting the industry on notice that any new serious breach of the rules which comes to light will be likely to attract a higher penalty from Ofgem.

“I am determined that energy companies use our reforms to transform their relationship with consumers.”

Nolan also dismissed concerns an investigation would impact on the investment decisions by the Big Six on major power infrastructure projects.

He said there was already "considerable uncertainty" in the market and the new process would bring clarity.

“This will be an independent process, it'll be a clear process, it'll be a transparent process,” he said.

“Investors will know how it has worked, will be sure of the fact that their concerns will be listened to and will get a clear and decisive outcome at the end.”

SSE announced on Wednesday plans to legally separate its retail and energy generation arms by March of 2015 in anticipation of Ofgem's announcement today.

Perth-based SSE also noted it would scale back its investment after next year and then up until 2018 – including many of its proposed renewable energy projects – as well as cutting 500 jobs which it said would fund expected profit shortfalls from its freezing of retail energy prices until 2016.

SSE lost in excess of 250,000 customers in the first nine months of the current financial year, with many having left to find better deals after SSE raised its gas and electricity prices by 8.2 per cent last October – well above the rate of inflation.

SSE had pledged not to raise prices further until the autumn of 2014 and a 3.5 per cent price cut it announced in January was implemented on March 24.

SSE said today it believes the UK energy market to be competitive, adding efforts have been made in recent years to make the market more transparent and easier to understand.

The company said the market has shown an appetite for reform and a full market probe should be used as a platform to achieve greater stability for consumers and investors.

SSE chief executive, Alistair Phillips-Davies, said: "Regulators, politicians, customers and SSE all want the same thing: an energy market that not only works for customers, but is also trusted and seen to do so.

“We welcome any efforts to clear the air, and in the meantime SSE will continue with its positive agenda for customers including its price freeze until at least, 2016.”

Commenting on Ofgem's announcement, Energy Secretary Ed Davey said: "This is tough action based on a detailed independent expert assessment of the state of competition in Britain's energy markets - leading to the first ever market reference for the energy markets.

“This is just too important for people to rely on guesses about how to fix the energy markets.

“If we get it wrong, consumers will pay the price.”

Centrica boss Sam Laidlaw said it would cause delays to investment and "an increasing risk" of blackouts because energy companies would put investment in their generation arms on hold while the review was carried out in case they were forced to sell them off.